Voting rights advisers criticize Commerzbank’s remuneration system

Frankfurt The Commerzbank is holding a virtual general meeting for the first time this year because of the corona crisis. But even without protests from small shareholders on site, there will be no shortage of critical topics at the event on May 13.

Added to this is the criticism of Commerzbank’s remuneration system. The influential voting rights advisor Glass Lewis and his German subsidiary Ivox recommend that shareholders reject the slightly modified remuneration system for members of the Management Board in March 2020. This emerges from the recommendations of both companies for the Annual General Meeting, which are available to the Handelsblatt.

“From our point of view, there is great potential for improvement in the company’s remuneration policy,” says the Glass Lewis study. The goals on which the variable remuneration of the Board of Directors depends are too vague and too focused on the bank’s performance in the past.

Anglo-Saxon investors in particular often follow the advice of proxy advisors such as Glass Lewis and ISS at general meetings. If the Commerzbank shareholders did not endorse the remuneration system, the Supervisory Board would have to deal with it again. Germany’s second largest private bank did not want to comment on this.

Criticism of the number of positions

In his study, Ivox also speaks out against the planned election of Jutta Dönges to the Commerzbank Supervisory Board. The co-boss of the finance agency is to be elected as the new representative of the federal government to the control committee in May – together with Frank Czichowski from the KfW development bank.

Dönges and Czichowski are to replace State Secretary Markus Kerber and Anja Mikus, who heads the State Fund for Nuclear Waste Management. After Commerzbank’s rescue from the crisis, the federal government still has a good 15 percent stake in the bank – and anything but satisfied with the development of the money house in recent years. In Berlin, some have hopes that Dönges and Czichowski can give new impetus to the supervisory board.

But at least Ivox has reservations about the Dönges personnel. There are no doubts about the manager’s qualifications, according to the study based on guidelines of the BVI fund association. “However, there are concerns about the number of mandates.”

Dönges is already a member of the supervisory bodies of the FMS Wertmanagement and the Deutsche Pfandbriefbank. In addition, there is her job as managing director of the finance agency, which Ivox rates as an “executive position” like two mandates.

According to this method of counting, your work on the Commerzbank Supervisory Board would be your fifth mandate. And that would be two more mandates than Ivox recommends for people in an “executive position”. “Therefore, this election should be viewed very critically,” said the voting rights advisor.

The finance agency did not want to comment on Ivox’s criticism. However, a spokeswoman pointed out that Dönges had resigned from the supervisory board of Eurex Clearing in order to avoid conflicts of interest.

In contrast to Ivox, the parent company Glass Lewis has no objection to the choice of Dönges. Other persons familiar with the personnel also consider the appointment to be sensible, after all the financial agency manages the federal government’s participation in Commerzbank and is in close contact with the institute anyway.

Dönges is also highly valued in Berlin because it closely monitored the Commerzbank strategy review. Some also believe that Dönges’ work at FMS Wertmanagement cannot be viewed as a full supervisory mandate.

More concrete goals for 2020

The core remuneration system for Commerzbank board members has existed for several years. In March it was slightly adjusted to take account of the new requirements of the second Shareholder Rights Directive (ARUG II) and the new version of the German Corporate Governance Code. The most important innovation is that a maximum remuneration for each member of the Board of Management of six million euros per fiscal year has now been fixed.

The variable remuneration of the Management Board depends 70 percent on the achievement of the Group’s goals and 30 percent on the development of the department for which the respective Management Board member is responsible. In addition, individual goals have an impact on the amount of bonus payments.

When calculating the variable remuneration for 2019, the development of the bank and the respective department in 2017, 2018 and 2019 is taken into account. Glass Lewis criticizes this approach as backward and advocates “forward-looking” goals. However, this would have the consequence that Commerzbank could not set the bonus payments for 2019 until 2021 – and that the actual payment to the Management Board would then be postponed even further.

Voting rights advisers also take a critical view of the fact that the expectations of the Management Board are not described clearly enough. The performance goals are “only presented in a descriptive manner, but not clearly disclosed,” complains Ivox. As a result, it is not understandable for shareholders whether the goals for the Management Board are ambitious enough, emphasizes Glass Lewis.

Strictly speaking, these comments do not refer to the remuneration system, but to the remuneration report, which the Annual General Meeting does not vote on this year. Nevertheless, there are employees within Commerzbank who find this criticism justified. According to financial circles, the goals for the Executive Board in the 2020 financial year have therefore already been formulated more specifically.

It is of course another matter whether there will be any significant bonus payments in view of the Corona crisis 2020. In addition, the payment of Commerzbank management is generally rather below average compared to other institutions. In the past year, the total remuneration of the Management Board amounted to EUR 12.1 million. At the neighbourhouse Deutsche Bank the executive committee received almost three times as much despite a loss of billions.

Assistance: Jakob Blume

More: Bank President Zielke: “Must review Corona business model”

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Unemployment in Italy and the USA increases dramatically

Closed business in the United States

Since the start of the corona crisis, over 26 million US workers have registered as unemployed.

(Photo: AP)

Rome, Washington Not only in Germany, but also in the United States and Italy, the dramatic consequences of corona-related restrictions on the labor market are becoming increasingly important. The United States saw another surge in unemployment claims last week.

According to figures released by the U.S. Department of Labor on Thursday, between April 11 and April 18, 4.4 million citizens applied for unemployment benefits. That is slightly less than the previous week, when 5.2 million applications were received. Overall, however, the historic downturn in the US labor market continues.

Until the start of the corona lockdown in mid-March, the US was practically fully employed. Since then, 26.5 million US workers have registered as unemployed. That corresponds to about ten percent of all workers there.

The unemployment rate for April, which will only be released in the United States on May 8, is estimated by experts to be around 15 percent. The Oxford Economics research institute calculates that the corona pandemic in the United States will lose a total of just under 28 million jobs. For comparison: The recession after the financial crisis in 2008 only destroyed about nine million jobs in the United States.

Registration for unemployment benefits in the United States is also likely to be particularly high because the US government has expanded claims to support in response to the corona shock.

American unemployed people now receive a fixed flat-rate payment of $ 600 a week from the federal budget, in addition to the unemployment benefit of a few hundred dollars a month, which varies from state to state.

For some low-skilled workers, government support is higher than their previous salary. For the first time, solo self-employed persons from the so-called gig economy are entitled to unemployment benefits.

This means that more redundant workers than before have an incentive to actually register as unemployed. However, those who quit on their own initiative or fly out due to their behavior generally have no claim to unemployment benefits in the United States.

Situation in Italy

In Italy, fear of corona-related unemployment is now almost as great as that of the virus itself. According to a survey conducted by the Tecnè research institute on Tuesday, 54 percent of Italians are afraid of losing their jobs, including civil servants . Meanwhile, 62 percent of the population fear the corona virus.

In Italy, not only is the number of corona deaths still highest in Europe, the economic consequences of the crisis are also the most dramatic. With only a few exceptions, production in the country already stops in the fifth week. There will only be easing from May 4. The International Monetary Fund therefore expects Italian economic output to decline by 9.1 percent in 2020.

In its “Global Outlook” for Italy, the rating agency Fitch estimates that the unemployment rate, which was ten percent in 2019, will rise to 12.1 percent this year and will only decrease slightly to 11.8 percent by the end of 2021.

The Italian statistics office Istat only published the unemployment rate for February at the beginning of April, a decrease to 9.7 percent was reported. But that was before the escalation of the Corona pandemic in Italy. It is only at the beginning of May that the March figures will show the true extent of the corona crisis on the labor market.

More: How are different countries and systems doing in the corona crisis? While European countries are at the top, China and the USA are lagging behind.

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South African rand in the downward pull

Frankfurt The South African central bank surprised the markets this week with a sharp rate cut. It cut the key interest rate from 5.25 to 4.25 percent and thus by a whole percentage point. In doing so, it compelled experts to show respect. “Praise to the South African central bank,” wrote Robin Brooks, chief economist at the Institute of International Finance (IIF), on Twitter. “In view of the high level of uncertainty, it takes courage to cut interest rates and overcome the fear of a price drop.”

What Brooks alludes to: The South African rand is one of the biggest losers in the corona crisis on the foreign exchange market. It has lost over 30 percent of its value against the US dollar since the beginning of the year. The Rand is particularly affected by the fact that international investors are currently avoiding risks and are therefore withdrawing capital from emerging countries. And many experts fear further losses. In this environment, an interest rate cut is definitely a risk, as this tends to put the currency under even greater pressure.

It remains to be seen whether the bill will work. “The coming weeks will be extremely difficult for South Africa and will therefore be associated with many ups and downs for the margins,” writes DZ Bank’s currency analyst Tobias Gruber in an analysis. Commerzbank’s head of foreign exchange, Ulrich Leuchtmann, makes a similar statement. “The rand is particularly vulnerable among emerging market currencies,” he says. “Traditionally, he suffers particularly in phases in which investors avoid risks.”

In addition, South Africa had significant structural weaknesses even before the corona crisis. In 2019, the country’s fiscal deficit was over six percent of economic output, and the current account deficit was around three percent, i.e. in the trade in goods and services with foreign countries. In crises, both are an expression of weakness.

Economic slump expected at six percent

In the past few weeks, the agencies Moody’s and Fitch had also downgraded South Africa’s rating, highlighting the poor prospects for the economy and the weak fiscal position. The poorer rating increases the financing costs for the country.

The South African central bank is now assuming that the country’s economy will shrink by six percent this year. In its latest report, the rating agency Fitch predicts that government debt will increase from currently over 60 percent of economic output to over 70 percent by 2022.

Some analysts are already asking whether South Africa can survive the crisis without outside financial help. It is “difficult to imagine that the country can manage the crisis on its own,” writes Gruber. Commerzbank expert Leuchtmann points out that South Africa initially does not want to receive any help from the International Monetary Fund (IMF) because it fears the associated stigmatization. However, he sees a possibility for help if there is a general solution for the emerging countries, for example through a debt moratorium.

South Africa is also vulnerable because international investors hold a particularly large amount of debt there. According to calculations by the IIF, a lobby organization of international banks, the share of foreign investors in the South African equity and bond market rose from around 35 percent in 2010 to over 60 percent in 2019. The problem: You quickly withdraw from the market when the risk appetite decreases as is currently the case.

In addition, South Africa’s debt in foreign currencies is comparatively high, as is the share of short-term debt. “Companies in particular have heavily indebtedness in foreign currencies,” says Commerzbank expert Ulrich Leuchtmann.

This is particularly risky in the current environment. Because if the edge devalues, the burden of this debt increases. This in turn limits the central bank’s scope to further lower interest rates. An interest rate cut tends to weaken the rand’s price because it makes it relatively more attractive for international investors to invest their capital in other currency areas.

The South African central bank is thus in a difficult situation. From an economic perspective, lower interest rates are appropriate given the extremely weak outlook for the economy. The risk of rising inflation is also low – not least because of the drop in the oil price. These arguments for lower interest rates are offset by the risks of a stronger devaluation of the rand.

The South African central bank initially decided to cut interest rates further. It will be seen in the coming weeks and months whether this calculation will work.

Much will depend on how long the corona crisis lasts. Should there be severe economic restrictions beyond the summer, Commerzbank expert Leuchtmann assumes that the pressure on the fringes should increase more. “It is crucial for a trend reversal that the risk appetite in the markets returns.”

More: The fear of an emerging market crisis is growing.

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Sale of Commerzbank subsidiary M-Bank is a long way off

Another major project of the “Commerzbank 5.0” strategy, on the other hand, has come to a standstill: Negotiations to sell the majority stake in the Polish M-Bank are on hold, according to the Handelsblatt. Experts believe that the goal set by CEO Martin Zielke in December of completing the sale by the end of 2020 can hardly be achieved.

Because of travel restrictions and barring contacts, it is currently impossible to conduct negotiations in Poland, said several people familiar with the subject. Many things like a tightened book check could not be done by video conference. In addition, Commerzbank currently needs a large part of its resources to deal with the crisis in Germany.

Commerzbank has not yet given up its goal of selling M-Bank. The team put together for this continues to exist.

Nevertheless, according to insiders, doubts are growing at the Frankfurt headquarters whether a successful sale can still succeed. The sales revenue originally targeted by Commerzbank could no longer be realized after the corona crisis, several people familiar with the negotiations told Handelsblatt.

A look at the Polish stock exchange underpins this assessment: M-Bank’s market value there has almost halved since the beginning of the year – from 3.9 to 2.1 billion euros. The value of Commerzbank’s 69 percent stake has thus fallen to 1.45 billion euros.

Just one bidder

In addition, M-Bank sales were difficult even before the outbreak of the corona crisis. Initially, a large number of institutions expressed interest in the fifth largest Polish bank, which is considered to be one of the most innovative financial institutions in Europe. These included the Polish subsidiaries of the major European banks BNP, Santander and ING as well as the Austrian Erste Group.

However, given the positioning of the national conservative government in Warsaw, which is committed to the “repolonization” of the financial system, foreign buyers have now said goodbye to the sales process.

The only serious bidder left, according to financial circles, is the second largest Polish bank, Pekao. The Polish state is indirectly involved in this through the insurer PZU. That other Polish institutes like Alior and PKO BP have not made an offer, was probably a political decision because the state also participates in these institutions, says banking expert Filip Mazurek from the consultancy firm Sollers.

The development is anything but encouraging for Commerzbank. Due to the lack of competition, negotiations had been difficult for the people of Frankfurt before the outbreak of the crisis, several insiders report. “Of course, if you only have one bidder, you won’t get the price you want,” said one of them. Commerzbank and Pekao were far apart in their ideas.

Speakers from Pekao and Commerzbank did not want to comment on the topic. CFO Bettina Orlopp said in mid-March that Commerzbank was still trying to sell M-Bank, but not at any price.

When its new strategy was announced in September, Germany’s second largest private bank assumed that it would have to sell M-Bank in order to finance its upcoming restructuring. Since the capital situation of the institute has improved, according to Orlopp this is no longer the case. “It still makes sense to sell M-Bank – but only if we can achieve the target price and if the transaction structure is right,” said the CFO. “Otherwise there will be no deal.”

“Sales process impossible at the moment”

The transaction structure is primarily about dealing with a multi-billion dollar loan portfolio in Swiss francs. M-Bank, like other Polish institutions, had awarded these on a large scale before the financial crisis. Because the Polish zloty subsequently depreciated significantly against the Swiss franc, the borrowers’ loans became unexpectedly expensive.

In October 2019, the European Court of Justice (ECJ) ruled that such loan contracts could become ineffective if they contained unfair terms. Polish courts have to decide in each individual case whether this is the case.

Since the ECJ ruling, the number of lawsuits and the number of cases in which Polish courts have ruled in favor of customers has increased significantly. M-Bank therefore had to significantly increase its provisions for these loans.

According to financial circles, Commerzbank hopes that it will be able to sell the franc loan portfolio in the course of an exit from M-Bank. In previous sales processes, the Polish regulator KNF had forced foreign banks to keep the franc loans.

Handelsblatt Morning Briefing - Corona Spezial

Consultant Mazurek does not believe that an agreement can be reached in the foreseeable future. “In my view, there are little to no chances that the transaction will advance in 2020,” he says. The prices are in the basement, the problems with franc loans are getting bigger.

The corona crisis would also pose many additional challenges for the banks. “There will be economic problems, bankruptcies and debates about loan extensions,” Mazurek said. “That makes a sales process impossible at least at the moment.”

The rating agency Fitch also has doubts as to whether Commerzbank can implement its strategy as planned. “Commerzbank is in the middle of a substantial restructuring that we believe could be thwarted by the ongoing crisis,” warned Fitch at the end of March.

From the perspective of those involved, it is difficult to predict how the M-Bank sale will continue after the end of the corona crisis. It would be no problem for Commerzbank to keep M-Bank, some say. However, this option is not particularly attractive because the Polish authorities have forbidden the M-Bank to transfer a dividend to Frankfurt for several years.

In addition, there is hope in Poland that Commerzbank will need the sales proceeds and the risk relief associated with an M-Bank sale sooner or later – and will therefore return to the negotiating table. “It is all just a matter of time,” predicts a person familiar with the negotiations.

More: Commerzbank board members warn – “The peak of the crisis is still ahead of us”

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Commerzbank board members do not yet see the crisis peak

Frankfurt The Commerzbank is currently being overrun by companies. “In the course of the corona crisis, we have already received more than 18,000 new financing inquiries,” said Roland Boekhout, CEO of Corporate Customers, in an interview with the Handelsblatt. According to an initial assessment, a large part of them meet the criteria for the KfW development bank’s loan program.

However, Boekhout also reports on companies that cannot currently be helped with funding programs. “There are sectors in which companies will find it difficult to recover from the corona crisis quickly enough to bear the built-up debt burden,” said the Dutchman. “Such companies need fresh equity, otherwise it will not be possible for banks to grant them further loans.”

The “absolute majority” of Commerzbank corporate customers have been able to manage the corona crisis relatively well so far, said Boekhout in his first major interview as Commerzbank’s corporate customer board member. But of course the expected slump in the German economy will leave a clear mark on customers. “The climax of the crisis is still ahead of us,” fears the banker.

Michael Mandel, CEO of private customers, does not believe that Commerzbank itself is in trouble as in the financial crisis and must be supported by the state. “We have massively reduced our balance sheet total in recent years and strengthened our equity,” he said. The liquidity base is also much better than before the financial crisis. “Our buffers are significantly larger, that’s the big difference to 2008.”

Commerzbank does not want to change its strategy because of the corona crisis. “Our top priority is to keep business going and help our customers through the crisis,” said Mandel. “But that doesn’t mean that we deviate even one iota from our strategy.”

So far, the crisis has been more of a confirmation “that we are doing the right things,” emphasizes Mandel. “This applies, for example, to our focus on” Mobile first “, that is, the further development of banking offers for the smartphone.” Also the plans to do more business with existing customers and digitalization through the integration of the online bank Comdirect to push forward are still right even after the crisis.

Read the entire interview here:

Mr. Boekhout, Mr. Mandel, how are companies reacting to the corona crisis?
Boekhout: The uncertainty is huge because nobody knows how the situation will develop. We are currently having an extremely large number of customer meetings. The situation differs greatly from sector to sector. At travel agencies, coach companies or restaurants, all sales suddenly disappeared. Other companies have only declined sales, but can continue to work as before.

As a bank, what can you do for affected companies?
Boekhout: Many companies have drawn on existing credit lines and have thus obtained additional liquidity. And we have already received more than 18,000 new financing requests in the wake of the corona crisis. According to our first assessment, a large part of them meet the criteria for the KfW development bank’s loan program. In many cases, this program is the most attractive solution for customers who want to secure liquidity. Of course, we must continue to examine each individual case closely.

What is important in individual cases?
Boekhout: We have to do a credit check for the KfW program – and we take that very seriously. We have accelerated our processes and increased our internal capacities. But we cannot and must not wave through loans simply because the state assumes 80 to 90 percent of the liability as part of the KfW program. KfW requires us to carry out a clean check in individual cases, and in the end we have to assume regulatory liability today. For example, companies that did not have a sustainable business model at the end of 2019 or who no longer met the framework conditions in existing loan agreements, known as covenants, have no chance of receiving KfW assistance under the program.

How many companies will you be unable to help?
Mandel: It’s difficult to estimate. For many companies, this can only be answered after a detailed examination. Basically, I think it’s great how quickly politicians reacted and launched three programs: the stabilization fund for large companies, the KfW loan program for medium-sized companies and direct grants for small businesses and the self-employed. But of course there are border areas with companies for which none of the programs really fits. However, I am confident that politics will improve it again.

Vitae Roland Boekhout and Michael Mandel

Where do you see need for adjustment?
Boekhout: There are many companies that are too big to get subsidies for small businesses, but too small for the economic stabilization fund. These are often companies with an annual turnover of between 500,000 and 50 million euros. There are many of them in Germany. In total, these companies generate sales of more than two trillion euros per year.

Sparkassen President Schleweis said recently in the Handelsblatt interviewthat many customers do not help loans, but that they need equity. Do you see it similarly?
Boekhout: Yes. There are sectors in which companies will find it difficult to recover from the corona crisis quickly enough to bear the built-up debt burden. Such companies need fresh equity, otherwise it will not be possible for banks to grant them further loans. It is currently difficult for such companies to raise equity on the capital market. But perhaps the stabilization fund can be designed by politicians to help these companies.

When do you expect details about the structure of the fund?
Boekhout: I am not involved in the discussions. But I hope that everyone involved will get clarity in the next few weeks. The decision-makers in Berlin know that time is of the essence for many companies.

The will to help is great everywhere at the moment. Do you see the danger that doomed companies will be artificially kept alive with aid programs?
Boekhout: This danger exists. You can’t blame entrepreneurs for looking for ways to save their company – also through the use of aid programs. But it is not economically responsible to help companies with short-term financing that they cannot repay in the long term. In individual cases, we unfortunately also had to inform companies that we could not provide them with any further funds. In such cases I am there from time to time and can tell you: These are not conversations that give me pleasure.

Some companies complain that many banks are currently unwilling to accept new customers.
Boekhout: We are still open to new customers, but our focus is currently clearly on existing customers, with whom we have often been a house bank for decades. Many of these customers remained loyal to Commerzbank when we were not doing so well. We now want to repay this trust. We are indeed more cautious with new customers and are no longer aiming for as much growth as in previous years.

Does that mean that the expansion in medium-sized businesses in Austria, France and Italy announced at the end of 2019 is on hold?
Boekhout: We are present in all of these countries and continue to aim to expand our business there. But at the moment we need all the resources to be there for our existing customers.

Do you also stop advertising for new private customers?
Mandel: No, on the contrary: Obviously, many people currently have time to deal with their banking business. Since the beginning of the year, we have won 130,000 new private customers at Commerzbank and Comdirect – mainly online, of course. In the last week of March alone, we saw growth of 10,000 new customers.

In this crisis we can be part of the solution. Michael Mandel

Can you currently handle such a rush at all?
Mandel: It’s a challenge, after all, about half of all employees currently work in the home office. But the technology works and there is a good corps spirit. Banks were part of the problem in the 2008 financial crisis. In this crisis we can be part of the solution. That motivates everyone.

Does the branch business still work in times of Corona?
Almond: Of our approximately 1,000 branches, the largest 200 are open normally. We temporarily closed 150 branches because there are alternative locations nearby. There is no regular customer traffic in the remaining more than 600 branches, but we can be reached by phone and email. Customers can also make appointments. We have equipped our ATMs with significantly more cash. In mid-March there were a few days when customers withdrew an exceptional amount of money. In the meantime, however, this has returned to a normal level.

The corona crisis will also increase the pressure on the banks. Do you expect Commerzbank and other institutes to face difficulties like in 2008?
Mandel: We have massively reduced our total assets in recent years and strengthened our equity. Our liquidity base is also much better. Our buffers are significantly larger, that’s the big difference to 2008.
Boekhout: Of course, we make regular calls to the financial regulator today than is the case in normal times. But that’s right. Finally, the supervisory authority must also have an overview of the situation so that it can identify potential market dangers at an early stage. The discussions with the supervisory authorities are very constructive. There is a common effort to overcome this crisis as best as possible.

The recession will worsen the rating of many corporate customers. There will also be more bankruptcies and defaults. Are you worried?
Boekhout: So far, the absolute majority of our corporate customers have managed the corona crisis relatively well. But we are watching the situation closely. We are at the very beginning – and not yet in the center of the storm. The climax of the crisis is still ahead of us. Our economists expect the German economy to shrink by 3.5 percent this year. This will of course leave a mark on our customers.

Does this mean you have to increase the risk provisioning for loans at risk of default?
Boekhout: We have done our homework in recent years and significantly reduced risks. It is too early at the moment to say how the corona crisis will affect our credit book. It depends on how long this shutdown will take. However, due to the close cooperation of the banks with the federal government within the framework of the state support programs, we assume that the impact on our customers’ ratings and the risk provisioning of the banks will remain manageable. At the moment, however, nobody can reliably predict what the effects will be in the medium term.

Are you afraid that, as in 2009, Schaeffler, another of its major customers, will falter again?
Boekhout: So far, the situation of our major customers has been quite stable. Almost all of them have enough buffers to bridge short-term liquidity shortfalls. For many, the focus is currently on organizing short-time work for parts of their workforce. Most of them want to continue to finance themselves through the capital market, but have agreed temporary credit lines with us as a precaution. Since the situation on the bond market is now improving again after three weeks of shock, the first companies are already placing bonds again and would not have to draw our credit lines at all.

Bond prices have risen and interest rates on loans are also rising. Is there now a long-awaited price correction on the overheated German corporate customer market?
Boekhout: Our focus is on bridging customer bottlenecks – this is not a commercial exercise. But it is quite possible that there will be a price correction – that would definitely be in line with the market. We can also see that companies that we support with credit in the corona crisis are also increasingly handling capital market business through us.

Finance minister Olaf Scholz says the fight against the corona crisis is a joint national effort, in which the banks sometimes have to “let five down”. Is that possible?
Mandel: The banking industry is still a highly regulated industry – and we have to abide by the existing rules. But within the rules, we have to do everything we can to help our customers quickly and pragmatically. Speed ​​is now the first civic duty.

How fast are you in lending?
Almond: In some cases, we last paid out loans within a day. Because many companies have to be quick, we have set up an internal special fund with a volume of EUR 700 million. We use this liquidity to pay out the requested development loans directly. This is how we bridge the time until KfW transfers the funds. KfW funds are to flow from April 6.

Commerzbank

The rating agency Fitch recently lowered the credit rating of the institute.


(Photo: dpa)

What is the situation like among private customers?
Mandel: If private customers are affected by short-time work due to the corona crisis or suffer other loss of earnings, we suspend repayment for construction loans for six months and for installment loans for three months. We will then discuss what happens afterwards with the customers.

The rating agency Fitch downgraded Commerzbank, among other reasons, because the corona crisis poses a great risk that the “Commerzbank 5.0” strategy cannot be implemented as planned. How big is the danger?
Mandel: Our top priority is to keep business going and to help our customers through the crisis. But that doesn’t mean that we deviate even one iota from our strategy. I took part in a conference call just before this interview. So far there have been no delays in implementing the strategy.

They don’t just want to implement the strategy, but want to further tighten the austerity measures decided in September 2019. The figure of 500 million euros is cited as a possible target for additional savings. Will the corona crisis make it more difficult?
Mandel: A strategy is not a static thing that you set for four years and then don’t touch. Fine tuning is always necessary. We started looking for additional savings in autumn. The talks are well on the way. Roland has also brought in his ideas since he joined us. Of course, things sometimes get more difficult organisationally when there is a personal contact block. But if one or the other doesn’t work because of the crisis, we have to make up for it later.

The corona crisis is a major turning point. Is it enough to fine-tune it afterwards – or should you think about the orientation of the bank again?
Mandel: So far, the crisis has been more of a confirmation that we are doing the right things. This applies, for example, to our focus on “Mobile first”, ie the further development of banking offers for the smartphone. Our plans to do more business with existing customers and to drive digitalization through the integration of Comdirect will still be correct even after the crisis.

The banking regulator Eba has asked the banks to review their remuneration policies, especially the variable remuneration. At individual banks such as Santander, board members have already announced that they will voluntarily forego half of their salary. Are there similar plans at Commerzbank?
Mandel: I think we have always been very responsible with remuneration issues. We will continue to do so in the future.

Mr. Boekhout, Mr. Mandel, thank you for the interview.

More: Commerzbank wants to tighten austerity measures and relies on consultants.

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Dax closes almost two percent

Up and down the Dax: “We have to die a stability death”

Dusseldorf After significant price fluctuations in the previous week, the German stock market started the new trading week comparatively successfully. The Dax closed Monday 1.9 percent increase at 9816 points.

In the previous week, the leading German index had the best weekly balance since December 2011: Despite price losses on Friday (3.7 percent in the red), the Dax had gained 7.9 percent.

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What the failure of major events costs insurers – so far

Frankfurt Thomas Bach hesitated for a long time – but in the end the pressure was too strong. The head of the International Olympic Committee (IOC) has canceled the summer games in Tokyo for the current year this week and is now aiming for a new date in spring 2021. This brings clarity to many competitive athletes and visitors.

For many insurance companies, however, it brings new financial uncertainty. In view of the postponements, large arithmetic has already begun in the executive floors of large insurers.

Especially the leading reinsurers, including the Dax-30 group Munich Re, now have to adjust to significant financial burdens due to the increasing failure of major events. “The more the virus wave spreads, the more Munich Re could be affected,” warned the company a few days ago in the annual report.

In the property and casualty line of business, a medium to high three-digit million amount threatens overall, mainly because the reinsurer has insured major events that are now threatening to fail. A few weeks ago, Munich Re was involved in the police of the Olympic Games in Tokyo as a member of a consortium with a three-digit million sum.

After all, the Olympic Games are not just a sporting event, but a highly professional billion dollar business. At the 2016 Summer Games in Rio, in the run-up to the Zika virus, the IOC earned around 5.3 billion euros. Experts expect the shift to cost the equivalent of up to 5.7 billion euros.

Insurers are reluctant to give figures

However, insurers and most of their customers are still covered by concrete figures. Investment bank analysts Jefferies estimate that the organizers, television stations and sponsors are insured with around two billion dollars against a cancellation of the Olympic Games. There would also be around $ 600 million for hotels and tour operators.

According to the online specialist portal “The Insurer”, the IOC usually insures itself against a failure of the summer games with only around 800 million dollars. The IOC paid insurance premiums of $ 14.4 million for the 2016 Rio de Janeiro games. At the 2018 Winter Games in Pyeongchang, it was $ 12.8 million.

The Olympic Games will definitely leave clear traces with the insurers. The CFO of Swiss Re, John Dacey, had estimated his company’s exposure to be up to $ 250 million. What a postponement would cost the reinsurer has not been said. There had previously been speculation that Olympia would cost up to a billion dollars to Swiss Re.

Hannover Re is also part of the consortium that has insured the Olympic Games. A few days ago, board member Michael Pickel mentioned a maximum of a mid double-digit million euro amount as a possible burden for his company in the event of an Olympic cancellation.

The largest German reinsurer, Munich Re, on the other hand, is much more buttoned up. Even after the decision of the IOC, the industry giant did not want to quantify how expensive the shift could be for the company. At the end of February, board member Torsten Jeworrek had only confirmed that the Munich group is part of the consortium that has insured the organizers against a failure of the games.

Big risks are part of the business

According to “The Insurer”, the group could face a total burden of up to $ 500 million because the Dax group had insured further Olympic risks beyond the IOC contract. A spokesman did not want to comment on this.

Munich Re may not comment in detail on the financial consequences of the postponement of the Olympic Games until May, it said. The employees, who are largely distributed in the home office, are still going through the documents.

However, it is part of the Dax Group’s business principle to shoulder greater risks. The hurricanes “Harvey”, “Irma” and “Maria”, which swept across the Caribbean, the Gulf of Mexico and the southern United States within a few days in 2017 and caused massive devastation, left behind at Munich Re, for example a burden of 2.7 billion euros.

Together with other natural disasters such as the earthquake in Mexico, these added up to a total loss burden of EUR 3.2 billion. However, the reinsurer did not cut its dividend at the time.

Rating agency lowers rating

Fitch rating agency lowered its outlook for fundamentals in the reinsurance sector this week due to Corona. However, the ratings in the reinsurance sector remained at “stable”. The industry could tackle corona consequences such as event cancellation, travel and accident costs, and loan defaults, although the market is still challenging. However, the reinsurers had insured relatively few risks and also agreed maximum sums and exclusions.

However, the cancellation of major events will leave its mark on the industry’s books. At the moment the reinsurer is leaving Hannover Re in the worst-case scenario with a maximum charge of around 200 million euros, said CEO Jean-Jacques Henchoz a few days ago.

Tokyo Olympics will be postponed to 2021

However, the cancellation of events threatens the group with a maximum burden in the mid double-digit million range, said CFO Roland Vogel. Protection against epidemic-related sales shortfalls is generally not part of the standard contracts.

The situation is much better alliance. Europe’s largest insurer will only really enter into business with the Olympic and Paralympic Movement as a new partner of the Games from next year. However, the Allianz subsidiary AGCS has already insured risks outside of the IOC contract for the 2020 Olympics. But an AGCS spokeswoman largely gives the all-clear. As a result of the postponement, the Allianz subsidiary expects only limited damage to its business. CEO Oliver Bäte should like to hear that.
More: Munich Re is more worried about capital investments

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Shares and companies that benefit from the crisis

Many jumps in profits are likely to remain unique. But changing consumption and work habits, including considerations to move production back to your own country, will have long-term effects. Also because globalization is being questioned. According to the French Minister of Economic Affairs and Finance, Bruno Le Maire, the virus should be a reason to rethink globalized supply flows. “It is necessary to bring back certain economic and technological business areas.”

Protection and disinfection: companies ramp up production

The biggest boom and inventiveness of companies is in respiratory protection. The mattress manufacturer Breckle from Weida, Thuringia, is converting part of its production entirely to respiratory masks. For a large order of 400,000 pieces, the medium-sized company has purchased an ultrasonic machine specifically so that the masks are not sewn, but welded. In doing so, they are responding to the increasing demand for respiratory masks worldwide, although doctors doubt their effectiveness.

The Taiwanese electronics and conglomerate Foxconn, which for Apple normally produces respirators for its workforce. After the majority of the 800,000 employees are equipped, Foxconn is now exporting its strategy.

The electronics manufacturer Sharp, which was taken over by Foxconn four years ago, produces 150,000 face masks a day in its Japanese display factory. According to Handelsblatt information, 600,000 units are to be delivered daily in the next few weeks.

Foxconn is not afraid of overproduction. Sales appear to be secured in the longer term. This is not only due to the current high demand, but also because the 127 million Japanese take preventive protection against the flu virus seriously by covering their mouths and noses.

In the US, conglomerate 3M is benefiting from the high demand for respirators. Instead of just five days a week, production now works seven days in a row on the production of N95 masks at the factory in Aberdeen in South Dakota. 3M also manufactures disposable overalls and hoods for isolation stations in hospitals. Has increased sales in the United States Clorox, the American counterpart to Sagrotan.

On February 4, when the management had presented the quarterly figures, CEO Benno Dorer said that he had not registered any increased demand so far, but was preparing for a rush – and therefore ramped up the production of disinfectant sprays.

Sagrotan manufacturer increased production weeks ago

The foresight should soon pay off. Since the virus reached the United States, disinfectants have sold out in many places. The share price rose to a record high and has risen by 15 percent since the outbreak of the crisis. Investors speculate that Clorox will raise its quarterly forecast.

German chemical companies that produce disinfectants under their own brands or ingredients for other manufacturers are also doing good business. Lanxess is the world market leader in disinfection in animal husbandry, but also produces funds for hospitals in the same plants.

Evonik manufactures disinfectants for sterilization in medical applications. “Our products are currently being torn out of our hands,” Evonik CEO Christian Kullmann reported last week at the annual press conference.

At medical technology manufacturer Drägerwerk, Corona has led to a surge in demand for respiratory masks and ventilators. The two locations in South Africa and Sweden are running at full load.

Reach from China Dräger currently many orders for ventilation accessories such as breathing tubes and filters. “Our factories are running at full speed,” says the Sagrotan manufacturer Reckitt Benckiser.

According to a group spokeswoman, the demand for disinfectants has “risen sharply”. That is why Reckitt increased global production capacities weeks ago. Nevertheless, there may be delays and bottlenecks in the coming weeks.

Retail: Canned food manufacturers and online delivery services benefit from the corona virus

The trend towards fresh regional foods set brands like Campbell Soup or Heinz ketchup too. That has changed suddenly since the outbreak of Corona. For fear of an emergency, more and more people are buying canned goods and powder soups. “Demand is increasing, no question about it,” said Mark Clouse, Campbell Soup CEO.

Last Wednesday, the stock of the soup maker, which also makes numerous other durable products such as spaghetti or snacks, jumped by ten percent. It’s the best performance in two decades. Overall, paper has risen by eight and a half percent since the last week in February, when the stock market crashed as a result of the corona crisis.

For comparison: The American stock market index S&P 500 lost just as much in value in the same period. What investors particularly like: Camp sources only ten percent of its ingredients outside the United States.

According to an analysis by the market research institute Nielsen, sales of milk powder in the United States more than tripled in the last week of February. Sales of dried beans rose by 37 percent, those of canned meat by 32 percent. The increase in sales was only exceeded by respiratory masks and disinfectants. Internet commerce is also a major beneficiary of the crisis.

The trend of having everyday consumer goods delivered to your door has been around for a long time – especially in Asia. Therefore the German service expanded Delivery Hero through the purchase of the South Korean market leader Baemin to the Far East. Corona is now reinforcing this trend.

Restaurants have to close, online services are booming

Since the government in Seoul asked the population to work more at home and go out less, sales have increased: at Baemin they increased by nine percent in the first half of February compared to the previous month, at nationwide number two, Yogiyo, by eleven Percent. Remarkable, since orders usually collapse after the New Year, which was the end of January this year.

“We believe that the epidemic will have a long-term impact on the behavior of Chinese consumers and will accelerate the trend towards online shopping channels,” said an analysis by the rating agency Fitch.

In the Chinese New Year week alone, JD.com sold 15,000 tons of fresh produce, 215 percent more than in the previous year. Above all, the demand for vegetables and meat increased by around 400 percent each.

While many shops and restaurants remain closed or have reduced opening hours, the food delivery company Meituan, whose platform has registered almost six million retailers and employs around 700,000 couriers, has quadrupled its food orders.

Due to the delivery boom, JD.com hired 20,000 new employees in the department store, as couriers and drivers, in February. Meicai, which exports fresh produce from the farm directly to the restaurant, also announced that it plans to contract another 6,000 truck drivers and 4,000 department store employees. At the moment, the staff was already working “to the end”.

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Industry mood drops to record low due to corona virus

Peking China’s industry has contracted even more than expected as a result of the corona virus. The official purchasing manager index for manufacturing (PMI) fell in February to 35.7 points, as the Chinese statistics office announced on Saturday – and thus to a record low. Even during the 2008/2009 financial crisis, it hadn’t fallen that deep. In January it was still 50 points. Analysts interviewed by the Reuters news agency had expected a drop to 46 points in February.

The sharp slump shows how badly the Chinese economy has been hit by the coronavirus crisis. The state-determined index mainly reflects the assessments of large and state-owned companies and is determined monthly. A value above 50 indicates expansion, while anything below 50 indicates contraction.

“The worst PMI in China in history will shock the markets on Monday,” wrote Iris Pang, ING Bank economist for China.

The other indicators, released by the Chinese statistical office on Saturday, also look bleak. The PMI for the service sector fell to 29.6 points in February, after 54.1 points in January.

To date, more than 79,000 people have contracted the pathogen in China alone, and more than 2,800 people have died as a result of the disease.

It will also be interesting on Monday when the Caixin PMI is published, an indicator that is collected by a private media company and is more focused on smaller private companies than the state-determined official PMI.

The following are the most important questions and answers on the crisis and how it affects the Chinese economy.

What is the current state of the economy in China?
The Chinese economy is suffering greatly from the crisis. For many companies, business stopped for weeks, plus the decline in consumption. Some economists expect economic growth to plummet to 3.5 percent in the first quarter. In the fourth quarter of 2019, growth was still 6 percent. The longer the crisis lasts, the more analysts lower their forecasts. The International Monetary Fund (IMF) now expects China’s economic growth to plunge 0.3 percentage points for the full year. Since the importance of Chinese economic growth has increased enormously overall in recent years, this also has an impact on global economic growth.

Which sectors are particularly affected?
In addition to industrial companies, the crisis hit companies in the catering and tourism sector particularly hard. They missed the important business around the Chinese New Year holidays because of the massive insecurity among the population. Most restaurants and hotels are now closed. And those who have opened have few customers.

The automotive industry is also affected by a large drop in demand. According to a report by the industry association PCA, the market collapsed by 92 percent in the first two weeks of February. The PCA had already reported a minus of 22 percent in January. The association expects the market to decline by around 70 percent in February.

Small and medium-sized enterprises in China are particularly hard hit, as they often do not have sufficient capital cushion to survive such crises. “Small and medium-sized companies are probably among the most exposed companies,” according to a recent analysis by the rating agency Fitch. Large state-owned companies that can rely on government support are better positioned, even in sectors where the impact on business could be significant.

The crisis also has an international impact: many companies see their supply chains threatened. According to a recent survey by the EU Chamber of Commerce together with the German Chamber of Commerce, all European companies doing business in China are now affected by the crisis. According to the survey of around 600 companies, almost 60 percent even see “serious” and another 30 percent “moderate” consequences for their business in China. Almost half of the total of 577 participants in the survey expect sales to decline by up to 20 percent in the first half of the year and beyond due to the crisis. 46 percent want to lower their full year targets.

What restrictions do companies in China currently have to deal with?
Due to the state structure, this varies greatly depending on the region. The central government in Beijing is only giving the rough direction when it comes to precautions to contain the virus. The provincial and city governments largely decide themselves which restrictions they impose.

One of the difficulties for the companies is the transportation of goods through China. Special permits must be obtained for transportation. In addition, many companies find it difficult to rule that people entering another province are initially quarantined for 14 days. EU Chamber of Commerce President Jörg Wuttke complains about a “patchwork of conflicting rules”. The travel restrictions and quarantine requirements also cause difficulties for the companies because so many employees cannot return to their workplaces.

In general, special hygiene measures must be taken everywhere, some of which are checked beforehand before the companies are allowed to resume their work. The provinces and cities specify how often the rooms have to be disinfected and how often the employees have to measure the temperature. Companies have to report regularly how often they disinfect their rooms and which employees come and go with them. In some places, meetings are completely forbidden.

What state aid is there for affected companies?
China has already taken numerous measures to bring more liquidity to the market, especially in the short term. For example, several reference interest rates have been lowered in the past weeks, banks are encouraged to issue more generous loans and to turn a blind eye when receivables are due.
However, China has not yet used the greatest leverage: the lowering of the minimum deposit requirements (“RRR”). However, it is expected and has already been announced that the Chinese central bank will lower the reserve requirements. The lower these minimum deposits are, the more liquidity the banks have available for lending – which they can then pass on to companies.
In addition, there are many provincial measures in China: For example, companies are waived social security contributions, taxes can be paid later, and there are also subsidies for research-based companies and tenants’ decrees.

How will it go on?
That depends on how long the crisis will continue and whether the restrictions in China will be maintained – and how severely the rest of the world will be affected by the virus. The top Chinese leadership has stipulated that the provincial and city governments should adjust the restrictions so that companies can return to work. According to data from the National Statistics Service, released on Saturday, 85.6 percent of large manufacturing companies have resumed work. However, experts do not give the all-clear. “It’s not as positive as it sounds,” writes engineer analyst Iris Pang. Even if Chinese factory production can recover in March, there is a risk that export orders will be small. “The reason is that the supply chain will continue to be disrupted, this time in South Korea, Japan, Europe, and the United States, where Covid-19 has started to expand,” said Pang. According to official data from the end of February, the situation is even worse for small and medium-sized companies in China. Accordingly, their production is currently only around a third.
A lot also depends on whether the situation in China is actually under control. In recent days, the number of newly infected people in China has shown a downward trend. However, the question is whether the number of newly infected people will increase again as soon as the restrictions to contain the pathogen are lifted again. “There is certainly a chance that the number of cases will increase again as the policy changes,” said Christl Donnelly, Professor of Statistical Epidemiology at Imperial College London. Every step in this direction must therefore be monitored very carefully and carefully.

More: Read all current developments in our news blog.

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